Today, I’m going to tackle one of the most seemingly unsurmountable pieces of personal finance advice out there: you should have an emergency fund. Before you read on further, this is a Devil’s Advocate post, which means I’m going to try to argue the other side even though I don’t believe it. So… before you read on, let me be absolutely clear … you should have an emergency fund, but if you want a few reasons why you shouldn’t… here they are.

First off, let me go over what I consider an emergency fund. It’s money you set aside for a real bad rainy day in a bank account, whether its a high yield online savings account or just a regular old savings account at your local bank; it must be in an account where the principal is protected. Putting it in a brokerage account, that’s not an emergency fund because the principal could evaporate on a really bad stock market day. So, why don’t you need an emergency fund…

Most Emergencies Are Small…

or if they’re big, they’re really really big. So, in most cases the emergency fund you have will either be way too much or not enough to handle the emergencies of life. If I were to guess the number one emergency that pushes someone to dip into their emergency fund, I’d say it would have to be for auto repair. Even if you follow the most aggressive recommendation of three months, a few hundred bucks for an auto repair probably won’t do too much damage to the emergency fund so your money would probably be better served in a brokerage earning market appreciation rates than whatever minimal rates you’d get in a savings account.

Credit Cards Can Get You By

If you go by the rule that you need 3/6/9/12 months of salary, you probably have that much on your credit cards. In fact, when you do face an emergency, it’s probably a good idea to pull out the plastic first even if you have the emergency funds because you can probably get at least 1% in points from it.

You Have Insurance

You probably pay hundreds of dollars a month in auto, home, life, and medical insurance; so why do you need thousands of dollars saved away for emergencies? Bust a tooth? Use dental insurance. Flooding in your house? Home insurance. Crash your car? Auto insurance. While it certainly makes sense to have a few dollars saved away, having a year of your salary sitting in an account earning a sad rate of return is simply not a strong financial decision.

Ultimately, what you want is to strike a balance between having no emergency fund and having too much earning a low rate. Certainly, since this is a Devil’s Advocate post, I think that having an emergency fund is a very strong financial decision (despite what I said in the last reason) and one that everyone should definitely start once you can.

• Nickel is in need of some help with his 415(c) issue.
• Did you know that there are almost a million accidental millionaires? Seriously, I have accidents all the time and never have I become a millionaire.
• JLP takes a look at Jason Clements view on mortgages.
• MBH says Debit, Schmebit to the latest debit offers.
• Flexo writes about a sucker who bought eight grand in Forever Stamps. Someone has to teach that guy about inflation…
• Gas is freaking expensive, check out these five gas tips from GenX and reduce your reliance on those evil terrorists!
• Need cash? Got blood? Donate plasma!
• Are we living larger or just living differently? Lazy Man takes his first cut of two at this issue.
• Ben kicks Trump while he’s down… if you didn’t know, Trump got fired this week.
• The old adage is that you should spend about a third of your take home income on your housing, so Golbguru asks… how much do you spend on housing?
• SVB comes up with a flowchart to help you figure out what exactly happened with the whole subprime lending thing. I’m a fan of the “default on house” step.
• Sun writes about how he switched to Vanguard’ss E-Service to avoid the new fee that replaced all other fees when Vanguard changed their fee structure.
• If you’re looking of something to do with your kids this summer, Raising 4 Boys has a good list of movie theaters giving away free summer movies.
• If you’re thinking about where your next dollar goes when it comes to retirement, be sure to pay off credit card debt after you contribute to a matching 401K but before anything. The rewards you reap from stemming the flow will far exceed any potential gains you may get from any IRA.
• You should smoke and fire detectors in your house, but you shouldn’t put rechargeable batters in those smoke and fire detectors. Rechargeables are designed for quick bursts, not the long and low sustained demands of a detector… plus you won’t know when it dies.

Remember last year when I tongue in cheek wrote that my house appreciated to $339,000 because someone in my area listed their home for that much? One of my neighbors recently refinanced his home to purchase a home down in Puerto Rico and while his was appraised at around $339k, other neighbors have started actually selling their homes and gotten far less. One neighbor two houses down just put their home on the market for $292,000 and another sold and closed at $308,000 (they are right next to each other); by comparison I bought my home two years ago for $295,000.

Does this mean I bought at the peak of the bubble and will see my house’s value languish? Hardly, because the business of homes isn’t as cut and dry as straight numbers. Just as I can’t say my house is identical to the one asking for $339,000, I can’t really compare my home to the one that sold for $308,000 or the one listed for $292,000 – there are just too many differences to be able to say they’re the same.

In both cases, there are only three bedrooms, two full baths and one half bath in those homes; mine has four full bedrooms, three full baths, and a half bath. Mr. $339, he’s just crazy over there because he only has an extra half bath over my neighbors… or is he? $339 has brand new windows, $308 has relatively new windows too but $292 still has the old 20-year old windows I recently replaced for $7k almost a year ago. $292 has a fireplace and a beat up old deck, $308 has neither… so you would think their prices would be closer given some of the other characteristics, but they’re not. With the $308 home, the couple was retiring and looking to move down south, money wasn’t as much of a concern as time was and so they listed it low and sold on Day 1. $339, probably not in a rush, that house has sat empty for months.

Am I simply justifying the price I paid for my house? Maybe in part, but mostly I’m just enjoying the psychology of the housing market as it plays out both locally and nationally in online and print media. I think a lot of buyers are picking their spots a little more carefully now because they know they have time on their side but buying a home is a long term decision. The last housing “boom” was like eight years long so even if down cycle lasts eight years, you’re still only talking ten years of living in one home. Ten years is nothing… that’s only a third of the way through a thirty year mortgage.

In China, no one should drink water straight out of the tap (this isn’t like Montezuma’s revenge in Mexico where locals can drink it; no one can drink the tap in China because the pipes are so old and so cruddy it would be very dangerous) so every is forced to buy bottled water, unlike in most places in the United States. How much does bottled water cost in a place where it is truly a necessity? 28 cents max. It’s 2 RMB at your local 7-11 equivalent, and it’s even cheaper if you buy it in bulk. And it’s bottled by Coca-Cola too.

I don’t quite understand why people in the US are absolutely fascinated with drinking bottled water. Drinking water certainly won’t hurt, it’s definitely better than soda, but to shell out a couple bucks a bottle seems kind of crazy when you can just pick up a indestructible Nalgene bottle for five dollars and fill it up forever from your tap for essentially free. Perhaps my tastes aren’t discerning enough to enjoy the wonders that is bottled water (or I don’t really care about carrying a bottle as a status symbol).

I have a Swiss bank account. Actually, I don’t, but if one really wanted to get one, it’s not as exclusive or hard as you would think because banks abroad are very much like banks in the US except they are governed by a different set of laws. Opening a bank account abroad is not inherently illegal but in many instances the motivations for opening those accounts is and the point of doing so is to prevent the US from seizing your funds. Ultimately, if you’re doing something illegal… you should probably stop.

This AskMen article talks about Switzerland (they keep secrets, don’t buckle to pressure and you can open one via mail), the Cayman Islands (also secretive but they do buckle to the US), Singapore (lowest tax rate in Asia, they invest in Asia), and Luxembourg (they ask some questions and they’re more stable).

Tommy of Dodoskido left a very good idea in my post ranting against the promotional teaser cashback offers that I thought was worth sharing.

Another tip: I label each card in my wallet with the terms…like:

“0% until 02/14/2008″

“5% back gas, cell, office”



That way everytime you go to yank one out of your wallet, you know what’s up.

Of course, one would argue that if you have so many cards in your wallet that you can’t remember, you might want to pare down your options because you might have to many. While that’s a valid point, why make yourself remember something when you can just write it down? Also, some programs like the Discover Get More cashback program will rotate at what stores your cashback offer is good for, so with it changing every quarter, don’t fill up your brain with information you can otherwise put down on paper.

Apparently this little “trick” has been known by some in smaller circles for quite a long time, but apparently if you search for number ranges in Google, you’re bound to find some valid credit card numbers. While it’s very much illegal to use someone else’s number to buy stuff, and I hope you burn if you do commit credit card fraud; this is something that they, as in the credit card companies, should fix. Google only finds stuff that’s freely available, so that means those credit card numbers are freely available. No need to hack a third party processors system or steal a laptop left unattended, just Google your way to a free flat screen plasma TV.

…credit card companies have apparently known about this technique for at least three years, probably longer, and presumably have hoped it would continue being swept under the rug

Un-freaking-believable. THREE YEARS!?!?!? Google has error’d out some of the queries but I’m sure something is bound to slip through… those credit card fraudsters are trickly like that.

This is part of my series of reading about investing topics like technical indicators. I don’t really know what I’m talking about and all of it is based on information I read online, please feel free to correct me, my interpretations, whatever – door’s wide open.

The Relative Strength Index (RSI) is basically a mathematical calculation meant to try to figure out whether a particular security is overbought or oversold. It does this by first taking the average of the price increases of a security on the days it’s up and dividing it by the average of the price decreases of a security on the days it’s down, then it does some simple math to come up with an RSI value using the following equation:

Now, how do you use this? When the RSI reaches around 70, it means that the security might be overvalued since it’s been going up a whole heck of a lot and may experience a drop of some kind, either a pull back or some profit taking. When the RSI reaches around 30, that’s an indicator that it perhaps has been oversold and is likely to rebound off its latest woes.

RSI indicators don’t work well on their own because big jumps or big dips will mess with the score, since it’ll throw the whole average off (as you would expect if you take an average). Experts recommend using this along with other indicators to get a clearer picture.

There you go, yet another crazy mumbo jumbo investing technical term demystified.